Given restricted access to credit, companies in need of
financing to support their international expansion have to meet
lenders' requirement for additional collateral. One of lenders'
typical requests when extending a loan to a US group parent
company is to require that the borrower grant security over the
shares of certain of its existing and future subsidiaries,
often including up to 65% of the shares of its first-tier
non-US subsidiaries, as part of a global security package.
Because of their multi-jurisdictional aspects, these
transactions present a number of difficulties, some of which
are well known. For example, the deemed dividend tax issue set
forth in Section 956 of the Internal Revenue Code, under which
the pledge to a lender of two-thirds or more of the voting
power of a foreign subsidiary may trigger a deemed distribution
of the current and accumulated earnings and profits of this
foreign subsidiary to its...